The Research About Market Risk And Measurement Method Of Transaction Account In Chinese Commercial Bank

With the acceleration of the market process of domestic interest rates, exchange rates and other asset prices, the investment business of commercial banks in China has been rapid development in recent years. The asset price fluctuates, the market risk of commercial banks exposed, and also increased the whole risk of the banking industry. In order to prevent possible financial crisis, the China Banking Regulatory Commission according to the Basel market risk management guidelines for commercial banks, requiring commercial banks in China to distinguish between bank accounts and exchange accounts and category management. According to relevant regulatory, the investment behavior of commercial banks should be included in the transaction account to be managed. Review the relevant literature, there is no scholars who based on overall framework of the transaction accounts of commercial banks to make a careful study on the market risk of the exchange account. Therefore, this article will focus on market risk in the exchange account of China’s commercial banks, in turn discusses risk identification and risk management issues for the exchange account, and hope through this article, commercial bank can receive constrctive suggestions to identify and manage the market risk of the exchange accounts.The so-called market risk, refers to financial institutions which held transaction positions suffered losses due to changes and the uncertainty in market price factors. Subject to the constraints of China’s Commercial Bank Law, China’s commercial banks are not allowed to hold the transaction positions of stock initially, so we need to redefine of the market risk faced by commercial banks in China. The market risk is the uncertainty of loss which subjects to fluctuations in interest rates, exchange rates and commodity prices. The first part, the linkage between the transaction account market risk factor analysis to identify the reaction mechanism between interest rates, exchange rates and commodity prices; the second part of the article, based on product characteristics and facing different types of market risk factor, transaction accounts were further divided into bonds, interest rate derivatives and currency derivatives, it compares different VaR method and find a suitable method for measuring the market risk of these products. Through research, the conclusion of this article are:(1) Through structural vector auto-regression model (SVAR) and impulse response function, the empirical analysis of the linkage between interest rates, exchange rates and commodity price fluctuations, indicating that the impact of each risk factor is asymmetric, the inter-bank changes in interest rates will cause the exchange rate volatility in current and lag, but its impact on commodity prices is limited to the same period; the inter-bank interest rates have a more independent of the operating mechanism, and not affected by exchange rate and commodity price factors; commodity price fluctuations has no effect on the current exchange rate in current, but in lag will have a greater impact.(2) Historical simulation method of VaR is more accurately when measure the markte risk of traditional debt products, the failure rate is more approach to the given confidence level of1%,5%and10%, while the Monte Carlo simulation and exponential weighted average method in terms of measurement accuracy is poor.(3) When research come to the market risk measure of interest rate derivatives,we select a representative product that interest rate swaps which represents the pricing characteristics of the three products, to do empirical analysis.Through using of historical simulation method, normal and T distribution of the principal component and the Monte Carlo simulation method to calculate the assumed position of the VaR, the results of historical simulation method and principal component Analysis and Monte Carlo simulation method show they underestimate market risk, especially the latter, and T distribution of the principal component and the Monte Carlo simulation method can overcome the existence of a fat tail phenomenon of the principal component, the calculation of VaR results are more accurate.(4) When measuring market risk of the exchange rate derivatives, we also select a strong representation, the forward foreign exchange, to do quantitative analysis, empirical results show that the simple VaR method can take full advantage of the price of the asset portfolio, this method is more excellent.From the perspective of the development of practitioners, while the commercial banks to accelerate the work of the exchange account market risk management, for example, the Industrial and Commercial Bank of China, China Construction Bank and other large state-owned commercial banks have set up a market risk committee and the corresponding market risk management department and the first to take the historical simulation VaR to measure market risk positions in the exchange account, but most of other commercial banks just take a simple sensitivity analysis to manage risk, the method of measurement is still very backward. And even the historical simulation method also have technological gap when compare with foreign banks’ risk management method. From the empirical results, the historical simulation method can wisely measure the traditional bond assets, but the measurement of derivatives, the results are not satisfactory. Thus, according to the conclusions of this paper, it is recommended that domestic commercial banks use historical simulation method to measure the bond market risk, and use principal component of T distribution with Monte Carlo simulation and the simple VaR method to measure interest rate derivatives and exchange rate derivatives respectively.